Enlightenment Through Understanding

The Daily View: QE vs. Fiscal Stimulus, The Rise of the Economists, America’s New Aristocracy, SAT

January 25, 2015

We’re living in crazy, weird, more unequal times. Theoretical physics, IQ, coding, finance and economics is more important than ever. The left said Instagram was a bubble when Facebook acquired it in 2013 for $1 billion; now Instagram is worth $30 billion. But web 2.0 valuations, the stock market, and Silicon Valley real estate are not in a bubble and have much more upside.

The fact stocks surge on QE announcements should lend some hint as to the efficacy of QE versus ineffective Keynesianism. QE is helping, even if we cannot exactly quantify how. Fed policy works, in contrast to fiscal policy (except tax cuts), because it directly (in contrast to fiscal stimulus, that is indirect) stops the deflation of asset prices. A major compliant is that QE contributes to wealth inequality because most people don’t have boatloads of stock or expensive real estate. If some people get left behind in the recovery, tough luck. Sometimes in a recovery not everyone participates at once, or even at all. That’s why you need to major in STEM or at least learn marketable skills. The Obama stimulus didn’t work because it was only artificial; instead, you have to create economic environments that are conducive to the long-term creation of wealth and the creation of jobs. Stimulus and other gimmicks don’t work. Businesses can’t make long-term capital investments when they know that within a year the stimulus spigot will be turned off. And because the stimulus projects themselves are not appropriated by market forces but by politics, they are inefficient.

The rise of economics coincides with the rise of HBD, as part of a broader post-2008 American Intellectual Renaissance. Compared to sociologists, psychologists, historians and anthropologists, economists won the debate because economists (except for far-left ones) use cold hard facts, logic and reason to construct policy that helps the economy, and ultimately all the individuals that comprise it (although there are some sociologists, psychologists, historians and anthropologists who don’t fit into the leftist mold). The social sciences, with the exception of economics, tend to have a decidedly liberal bias, are wishy-washy (subjective) and advocate haphazard policy that, if implemented, would cause society to regress, not advance. Economists (except the far-left ones) know that wealth inequality is a byproduct of an economy that rewards talent and merit and, therefore, while wealth inequality is possibly undesirable, trying to force more equality and egalitarianism would hurt the economy and lower living standards for everyone. As one of the squares of the quadrantsphere, many economists are at least receptive to the un-PC idea that maybe IQ is correlated with socioeconomic success (biological determinism) or that perhaps we can abort our crime and entitlement spending problem. Economists give empirical, data-driven answers to the stubborn problems facing society, formulate policy – while unpopular with large portions of the population – that is necessary (bank bailouts, Reaganomics), and overall improve our understanding of the world and the rational actors that participate in it.

Heredity of intelligence doesn’t preclude the possibility of poor families having smart children and those children succeeding, but assortative mating means that high IQ tends to be clustered among certain families. The economist article isn’t an attack on the poor, it’s simply describing how biology, especially as it pertains to the heredibility of IQ, seems to have an inextricable role in American society, especially in the post-2008 hyper-competitive winner-take-all economy.

To help the gifted poor escape poverty, the best standardized test would one that measures academic readiness, but where preparation has a minimal impact on scores. Analogies satisfy both, being both a predictor of learnedness and are hard to ‘game’. There are thousands of words to choose from and each word has a specific meaning unlike math concepts, which tend to be fungible and interchangeable, of which there are fewer total math concepts to learn than number of words to memorize.

In the purist of equality over the meritocracy, the left is trying to make the SAT less like an IQ test and more like a knowledge assessment test, for example by removing the notoriously hard analogies section, which benefits those who have the most money for tutors and special classes. The analogies section, unlike the math section, it harder to study for because the pool of words to choose from is seemingly limitless, and the only way one can score exceptionally well is to do a lot of extracurricular reading over many years; but not only read a lot, but be smart enough to read difficult books and infer and retain the definitions of the more rarefied words as they arise. Not surprisingly, vocabulary, not math, has the the highest correlation with IQ “of any individual measure of intelligence.”